Last updated November 2nd, 2019.
Investment advisers, especially those in the western world, usually tell their clients they cannot beat the market.
They’ll say a “market average” return of about 7% per year is the best you can get over the long term.
Granted, that might be true if the United States (or wherever you happen to live) were the only country on Earth. Indeed, there are statistics proving the merits of investing into an index fund versus picking your own stocks.
Few investment advisers think outside the box though. Even less of them think internationally. They’re constrained by the borders of the country they’re living in.
See, there isn’t just “the market”. From Thailand, to Vietnam, to Japan, there are many different markets. Some of them are stock markets, others are private equity or real estate markets.
Either way, lots of these markets boast opportunities that you can’t find in your home country at all.
They’re generally uncorrelated with the S&P 500 or Dow Jones, which makes the “7% average” a rather meaningless figure within a global context.
Breaking Entry Barriers: Doing What Others Can’t
You may still wonder: “if better returns can be found in other countries, why doesn’t everyone invest in them?”.
The answer? Barriers to entry. High growth frontier markets, including Laos and Cambodia, do not have stock exchanges that are fully functional and liquid. As such, there are few simple and reliable options to invest in them.
Institutional buyers – those wanting to deploy a large amount of capital at one time – are facing problems in particular.
For example, it would be nearly impossible for Vanguard or iShares to start an ETF that focuses purely on Myanmar or Mongolia. Frontier markets like them are simply too small.
They can’t offer the liquidity or other purchasing requirements that firms like JP Morgan would demand. Even if they managed to wade through all the bureaucracy and foreign regulations.
Many finance “experts” will tell you that markets are efficient, and as such, achieving outsized returns on investments compared to the risk involved is impossible.
That isn’t correct. But even if it were, it would only apply to markets that investors can trade in without entry barriers.
The fact remains: markets aren’t efficient if most people never put forth the effort required to access them.
Cambodia is among the fastest growing nations on the planet. They also have the world’s smallest stock exchange with only five listed companies though. Investing here requires a bit of originality.
Greater Effort Helps You Beat the Market
Speaking of effort, your work is something else that can help you outperform the stock market. Never underestimate the impact that additional labor can have on your investments.
It might sound cliche and obvious. But your work does have value.
That’s the reason why day traders usually beat the market, outperforming more passive stock investors. Property flippers often make consistent returns in the double digit range because of their extra work.
Similarly, massive hedge funds and other financial institutions wouldn’t ever spend millions on skilled analysts if the added cost wasn’t worth their labor.
You may not have enough time nor the expertise needed to become a professional day trader or property flipper. Most people certainly do not.
However, REITs, and private placements are all different ways to let someone else do the work on your behalf. Sometimes they’ll charge a fee – and the fee could be worth saving yourself the hassle.
My experience says that the best investments combine a solid effort with breaking down entry barriers. It’s even better if you can do so in quick-growing, stable countries with strong growth prospects and demographic trends.
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